Equity crowdfunding investing risks and opportunities

Just like any other types of investments, equity crowdfunding investing comes with both risks and opportunities.

Crowdfunding is no longer a mysterious investing tool. On the contrary, this way to invest money has been gaining ground for the past few years.

As many of you probably already know, crowdfunding investing opportunities are now available to everyone, not just to accredited investors. And with so many entrepreneurs in need of funds to start a business from scratch, equity crowdfunding is becoming more and more popular.

The way equity crowdfunding works is simple.

Investors – also known as the “crowd” – pool their money together into a startup to “fund” it. In return, investors expect the opportunity to earn revenue or other form of compensation. Hence, the term equity crowdfunding.

Bank loans are expensive, so reaching investors through various crowdfunding platforms seems like a good idea to try and raise money to start a profitable business. Also, if a startup reaches the right investors, the amount of funds they could raise is unlimited.

Take a look at this investment crowdfunding campaign. With the implementation of the JOBS Act, the company managed to raise more than 500% of the minimum they were hoping for, all thanks to non-accredited investors.

It’s exciting to think anyone can invest in equity crowdfunding now. It’s not all rainbows and unicorns, but finding the right equity crowdfunding campaign to invest in could be beneficial to your investment portfolio.

Equity crowdfunding
investing risks and opportunities

There are certain risks that arise when investing in equity crowdfunding

Some platforms remain exclusive to accredited investors

Although the big fuss in regards to crowdfunding was about everyone being able to invest, some platform remain exclusive to accredited investors.

Unless you’re Richie Rich rich, you can’t have access to every crowdfunding investing opportunity out there.

Risk of fraud

The main way investors are reached is through social media or other online environments. As you can imagine, the risk of being a con victim here is pretty high.

If you do a bit of research before actually investing your money, this probably won’t be a problem. But if you’re new to equity crowdfunding, you may end up being conned out of your money!

New businesses may fail

This is just stating the obvious: new businesses may fail. Rapidly. They could come down crashing like an avalanche on a rainy day.

An entrepreneur’s purpose is, most definitely, to create a thriving business and to be able to compensate your financial effort towards helping them out! But if that’s not the case, the risk here is you losing your money.

Platforms may be at risk of hacking

Recent hacking events can’t help but make most of us wonder: how safe is the online environment anyway?

The possibility that you may invest your money, just to lose it after the platform’s been hacked, is real. In addition, you may have your identity or credit card information stolen.

Return of investment may not be immediate

In some cases, it’s unlikely that you’ll see a return of your investment really soon.

Every equity crowdfunding investor expects some kind of compensation for their financial efforts to help, but that may take years or sometimes, you may not even see a ROI at all.

But equity crowdfunding comes with great opportunities as well

You can start small

If equity crowdfunding is new to you, you can start small.

As you probably noticed in the equity crowdfunding example above, the company allows anyone to invest as little as $100.

Of course, others who seek investors may have different ‘rules’, but all in all, you don’t need to fork out huge amounts of money to start investing in crowdfunding projects.

Returns of investment could be well worth it

Sure, there’s the risk that a new business might fail. But there’s the possibility it may thrive and you could earn a heck of a lot of money in return!

Even if a new startup doesn’t develop into a huge profitable company, the ROI could still be worth it. Unlike donation based crowdfunding, some startups offer investors the chance to earn some serious money in the long run.

You have the opportunity to earn exclusive rewards

Often times, startup investors have the right to earn exclusive rewards.

Depending on the type of company you invest in, you may receive exclusive items that haven’t been launched yet or have the opportunity to test products out before anyone else has the chance. Sometimes, this is in addition to the potential financial rewards!

That Christmas Movie LLC offers fans a chance to actually visit the set as well as receive other perks, in addition to earning revenue based on the movie’s success. How cool is that?

Video gaming companies often offer free copies of the game before it’s officially launched, or action figures or other interesting perks to people willing to put their money to good use.

Long term investment plan that helps diversify your portfolio

Although it could take years before you can reap any equity benefits, crowdfunding is really a great long term plan, if you’re looking to diversify your investment portfolio.

It’s a well known fact a diversified investing portfolio is best if you’re planning on enjoying your retirement years care free. Investments are a great tool to top off your retirement funds, and equity crowdfunding could help.

The chance to invest in something you believe in

This may sound cheesy, since investing is a serious financial matter, but equity crowdfunding may just be your chance to invest in a cause you believe in.

There are plenty of startups involved in different underrepresented causes: protecting the environment, helping minorities, etc. Alternatively, maybe you’re very passionate about technology or the film or music industry and would love a chance to be part of an innovative project!

Equity crowdfunding may be the right opportunity for you to make a contribution. Not to mention, you would be contributing to the economy by possibly creating more jobs for people who need them.

Personal emotions should never influence any investing decisions, but in this case, crowdfunding may be the perfect combination between investing and personal satisfaction.

As previously mentioned, equity crowdfunding investing comes with both risks and opportunities.

It can be a ‘fun’ way to invest, since you have the opportunity to invest in a cause that hits home or get exclusive rewards in return. But being careful is key, since you’d need to be prepared to lose your money, should things not work out.

Have you ever invested in crowdfunding projects?
Would you recommend it as way to diversify an investment portfolio?